Krispy Kreme Reports Improved Results for the Third Quarter of Fiscal 2010

Operating income for the third quarter was $0.6 million, compared to an operating loss of $1.3 million in the third quarter last year

Krispy Kreme Doughnuts, Inc. (NYSE:KKD) (the “Company”) today reported financial results for the third quarter of fiscal 2010, ended November 1, 2009.

Third Quarter Highlights:

– Operating income for the third quarter was $0.6 million, compared to an operating loss of $1.3 million in the third quarter last year

– Operating income for this year’s third quarter reflects provisions for the settlement of litigation and related legal costs totaling approximately $2.0 million ($.03 per share)

– The Company posted a net loss of $2.4 million in the third quarter ($.04 per share), compared to a net loss of $5.9 million ($.09 per share) in the third quarter last year; last year’s net loss reflected a non-operating charge of $900,000 ($.01 per share) related to a loan to a franchisee

– Cash provided by operating activities in the third quarter was $5.8 million, compared to $1.3 million in the third quarter last year; for the fiscal year-to-date, cash provided by operating activities was $15.9 million compared to $10.8 million last year

– Same store sales at Company-owned stores rose 5.1% year-over-year in the third quarter, compared to a gain of 5.9% in the second quarter, 2.1% in the first quarter and 0.9% in the fourth quarter of last year

“Our results continued to improve year-over-year in the third quarter,” commented Jim Morgan, the Company’s President and Chief Executive Officer. “Our improved results are evidence of progress in implementing our strategic initiatives, which have us on a path toward building a growing, profitable business that is sustainable for the long term.” Our third quarter progress toward improving our business included the following:

– We opened two new Company small retail shops, bringing our total small shop openings to five for the year so far;

– We signed letters of intent for five additional small retail concept shop leases in Virginia and Tennessee;

– Our domestic franchisees opened two small retail shops in the quarter, one in Arizona and the other in Pennsylvania;

– Our international franchisees continued to expand, with a net increase of 15 locations in the quarter, including the first Krispy Kreme shop in Turkey which opened in Istanbul;

– We awarded franchise development rights for Thailand and the Dominican Republic;

– We continued to increase franchisee support, including hiring personnel with substantial international supply chain experience to support our international expansion and introducing an expanded suite of store support tools for domestic franchisees, including integrated local, national and social marketing, on-line new store design support and a pilot of new food cost management tools; and

– We used cash from operations to make a discretionary $5 million prepayment on our term loan, bringing our total prepayments year-to-date to $25 million; our debt stands at $49 million, compared to $75 million one year ago.

“There is still much work to be done to achieve our long-term goals of sustained revenue growth and consistent profitability, but we are pleased with the improvement in our financial results for the third quarter and year-to-date fiscal 2010,” Morgan continued. “These results continue to reflect the efforts and dedication of our team members and franchisees. We believe that we have the right strategies, and that the benefits of their implementation will be more fully reflected in our financial results in the quarters and years ahead.”

The Company has filed its Quarterly Report on Form 10-Q, which includes interim financial information as well as management’s discussion and analysis of the Company’s financial condition and results of operations.